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EQC premium increases 1 November 2017

1 Nov 2017

The EQC premium on home and contents insurance increases on 1 November, in line with the Budget 2017 announcement on 25 May 2017.

The total EQC premium increases to a maximum $276 including GST annually, up from a maximum $207. The EQC premium is calculated at 20 cents per $100 of cover on the first $100,000 of home cover and on the first $20,000 of contents cover.

The EQC premium increase will help rebuild the Natural Disaster Fund, depleted as EQC settles its liabilities arising from the Canterbury and Kaikoura earthquakes. The Natural Disaster Fund, along with EQC's current $4.8 billion reinsurance programme supported by the underlying Crown guarantee, are in place primarily to meet the potential costs of large-scale natural hazard events such as the Canterbury and Kaikoura earthquakes.

The increase also ensures EQC continues to provide cover for smaller scale natural disasters, such as the recent Edgecumbe floods, and invests in research into natural hazard risks and potential mitigation.

EQC provides natural disaster insurance for residential buildings, contents and land. Called EQCover, it is available up to certain limits for each damage-causing natural disaster event, as long as you have a valid private insurance policy that includes fire cover at the time of the event.

Some Questions and Answers

What is the EQC premium?
All holders of home and/or contents insurance policies with fire cover pay the EQC premium (or levy) which contributes to EQC's cover for earthquake and other natural disasters.

for your residential building and land if you have a valid private insurance policy for your residential building that includes fire insurance (and most do)

for your contents if you have a valid private insurance policy for your contents that includes fire insurance (and most do).

What has changed?
The EQC premium, paid at the same time as people pay their home or contents insurance premiums, increased by up to $69 on 1 November 2017 (from $207 to a total of no more than $276 per year, including GST). The amount is calculated at 20c per $100 of insurance cover and was previously 15c per $100 of cover.

When did the change take effect?
The change took effect on 1 November 2017. It was announced by the Government on 25 May 2017.

How will the change impact householders?
For householders with cover for both home (generally $100,000 plus GST) and contents (generally $20,000 plus GST) the increase in the annual EQC premium will be $69 including GST.
The earthquakes in Canterbury and Kaikoura demonstrated the importance of the EQC scheme in providing insurance cover to New Zealanders following a natural disaster.

Why has the rate changed?
EQC has two sources of income — premiums, which are paid into the Natural Disaster Fund (NDF), and investment income from money held in the NDF. The Canterbury and Kaikoura earthquakes will substantially exhaust the NDF.

At the previous premium rate of 15 cents per $100 of cover it would have taken more than 30 years to rebuild the NDF to $1.75 billion (the amount of "excess" EQC needs to pay on its current reinsurance programme). Increasing the premium rate to 20 cents will help EQC meet its long-term costs and rebuild the NDF to this level within 10 years.

It is important that EQC has the financial resources of the premium to support New Zealanders recovering from natural disaster and keep providing affordable and accessible cover.

How much money will the premium increase generate?
EQC currently receives around $280 million per annum in premium income. The increase in the premium is expected to raise an additional $26 million in 2017/18 and $94 million in 2018/19.

What does EQC use its premium for?
The premiums that EQC receives pay for the annual operating costs of EQC, which include:

the purchase of EQC's $4.8 billion reinsurance programme

the settlement of claims arising from smaller scale natural hazard events, such as the recent Edgecumbe floods (in 2016/17 there were more than 2,000 claims from storm or flooding events)

funding for GeoNet

research into natural hazard risks and potential mitigation

public education to increase community preparedness and resilience to natural disasters.

EQC's ongoing investment in research, including GeoNet, increases our knowledge and preparedness to respond to natural hazard events and reduces uncertainty for international reinsurance markets which continue to provide cover for New Zealand.

Any annual surpluses are invested into the NDF. The NDF, along with EQC's current $4.8 billion reinsurance programme and the underlying Crown guarantee, are in place primarily to meet the potential costs of large-scale natural hazard events such as the Canterbury and Kaikoura earthquakes.

How will this affect my private insurance policies?
Since your private insurer collects the premium on EQC’s behalf, this means you will pay the increased EQC premium when you pay your private insurance premium. The premium increases on 1 November 2017 but you won’t see it on your private insurer invoice until your annual policy renewal.

The home and contents cover you receive from your private insurance policy is separate to EQCover and a matter between you and your insurance company.

Is EQC running out of money to pay claims?
EQC's Crown guarantee means it can meet its earthquake and other claims regardless of the amount of premium it receives. However, the increased premium rate reduces the amount the Government may have to pay under the guarantee in the future.